22 September 2009

Chairperson: Mr E Sogoni (ANC)

Meeting Summary

The Committee met with the Committee for Planning and Budget of the Iranian Islamic Assembly to discuss the two countries' systems and procedures for allocating the national budget.

After brief introductions of members, the Standing Committee explained its role in the budget process according to the Money Bills Amendment Procedure and Related Matters Act. The Committee highlighted Section 4, dealing with Parliamentary committees for consideration of money bills, Section 6, relating to the Medium Term Budget Policy Statement and Section 15, on the Parliamentary Budget Office.

The Iranian delegation was particularly interested in how the Financial and Fiscal Commission (FFC) was appointed and asked what was meant by a mid-term budget adjustment. The Members of this delegation asked how revenue collection was managed and what revenue sources South Africa had for funding the national budget. With reference to the three-year medium term budget of departments, the Iranian delegation asked whether budget allocations were made to the three-year medium term budget, and whether the Committee could amend the two outer years of the medium term budget.

Meeting report

Interactive session with delegation from Committee for Planning and Budget of the Iranian Islamic Assembly The Chairperson informed the Committee that the members of the Iranian delegation were from the Committee for Planning and Budget in the Iranian Islamic Assembly. The Iranian Committee's role was almost identical to that of the Finance and Appropriations committees in the South Africa Parliament. The purpose of the session was to explain the South African system for budget and planning and to learn how the Iranian system worked. The Committee was grateful for the opportunity to engage and was particularly pleased to have been chosen above other countries. He welcomed the delegation to South Africa and wished them a fruitful stay.

The Chairperson introduced the members of the Committee. Upon request of the Iranian delegation, he included their provinces and parties. He stressed that the Committee endeavoured to reach consensus on issues, even though the members represented different parties.

He stated that each committee consisted of twelve full-time members, with other alternate members. Eight of the twelve full-time members were from the ANC.

Mr M Mofatteh, Chairperson of the Committee for Planning and Budget: Iranian Islamic Assembly, invited the Committee to visit Iran at its earliest convenience.

He stated that each Committee in the Iranian Islamic Assembly (the Assembly) consisted of 23 members. Each of the members of these committees was an expert in a field relevant to the committee's work.

Five of the 23 members of the Committee for Planning and Budget were present. The members were experts in budget planning and were also experienced members of the Assembly.Mr Mohammed Reza Tabesh had served three terms (each term consisted of four years) in the Assembly, served as a deputy in the ex President's office and held a PhD in National Resources and Environment. Mr Ali Asghar Davoodi came from the Consular section of the Iranian Embassy. He had experience as a member of the Assembly and as a member of the Supreme Audit Court. He added that the Assembly managed the Supreme Audit Court and this body was responsible for auditing the national budget of Iran.

Dr Abbas Ali Noura had served two terms as a member of the Assembly, was Chairperson of one of the Iranian universities and held a PhD in Mathematics. Dr Hamid Saadat had served three terms as a member of the Assembly, had been head of the one of the Iranian universities and held a PhD in Mathematics. Mr Hassan Vanrei was the Secretary of the Committee. Mr Mofatteh had served four terms as a member of the Assembly and was currently Chairperson of the Committee for Budget and Planning. Mr Akbar Khosravi-Nezhad was the Deputy Ambassador to South Africa and also acted as translator in this meeting.

Mr Mofatteh explained that once the government made the total budget allocations, four to seven members of the Committee for Planning and Budget revised the budget and then the full 23 member committee would meet to finalise the allocation of the budget. This also included other members of other committees in the Assembly to comprehensively revise the budget. The Assembly was the final decision maker. The government then implemented the budget allocations. This principle applied to all the other issues before the other committees in the Assembly. There were 12 committees in the Assembly. The members of these committees usually specialised the subjects relevant to their portfolios. .Broadly referring to Iran's developed electoral system, Mr Mofatteh stated that 80% of eligible voters voted in the last election and the current President of the Islamic Republic of Iran, Mr Mahmoud Ahmadinejad, was elected by two thirds of the vote. Mr Mofatteh added that this was a good indication of their democracy.

The Chairperson explained that the fourth democratic Parliament was opened by the President on 3 June 2009, after which committees were set up. The committees in Parliament had experienced members but also included many new members who had joined the National Parliament. These new members would have gained experience at South Africa's provincial legislatures. He noted that the Standing Committee on Appropriations was previously called the Joint Budget Committee. The previous committee consisted of members of both the National Assembly and National Council of Provinces. The Committee, in its present form, had been set up according to the Money Bills Amendment Procedure and Related Matters Act (the Act). The Committee had undergone extensive training in order to fulfill its new functions according to the Act.The Chairperson reviewed the Money Bills Amendment Procedure and Related Matters Act as a way of explaining the role of the Parliamentary committees on Finance and Appropriations. He referred the delegation to Section 4, dealing with Parliamentary committees for consideration of money bills. This section stipulated that Parliament had to form the current committees on finance and appropriation in the National Assembly and the National Council of Provinces. He detailed the functions and powers of the committee in making recommendations on spending issues and amending the Division of Revenue Bill, the Appropriation Bill, Supplementary Appropriations Bills and the Adjustment Appropriations Bill.

Mr Mofatteh asked, in relation to the Adjustment Appropriation Bill, what was meant by “mid term”.

The Chairperson responded that the budget came into effect in April. Adjustments were made to the budget in October of that financial year. It was called mid-term because October was six months into the fiscal year, which ran from 1 April to 31 March.

The Chairperson then highlighted the role of Financial and Fiscal Commission (FFC) and its recommendations.

The Chairperson asked how budget allocations would be decided upon in Iran.

Mr Mofatteh replied that in Iran, departments took part in these deliberations directly. The Presidential office also took part directly, through a representative.

The Chairperson explained how the FFC was constituted and how it made recommendations on the budget. He emphasised the FFC's independence and noted that the FFC recommendations mainly concerned infrastructure spending. It currently consisted of nine commissioners, supported by a team of researchers.

Mr Mofatteh asked who appointed the FFC and whether the commissioners of the FFC were members of Parliament or part of Government.

The Chairperson responded that the commissioners were appointed by Parliament and the Chairperson of the FFC was also the Chief Executive Officer of the FFC. The commissioners were appointed for their expertise in different fields. They were not parliamentarians.

Mr Mofatteh asked whether they were appointed by Parliament.

The Chairperson responded that Parliament made recommendations to the President, who then appointed the commissioners of the FFC. The recommendations were based on the expertise of prospective commissioners.

The Chairperson stated that the Standing Committee was tasked with the review of the reports of actual expenditure were published by the National Treasury in terms of Section 32 of the PFMA. These were monthly and quarterly expenditure reports.

Mr Mofatteh asked if departments delivered their budgets directly to Parliament. He was also curious as to how many years were covered by the medium term budgets of departments.

The Chairperson responded that the Minister of Finance presented the national budget to Parliament in February. Thereafter each department presented a strategic plan to the relevant Portfolio Committee in Parliament. This strategic plan included the annual budget for the current financial year and a medium term budget for the two years following the current financial year.

Mr N Singh (ANC) pointed out that the major difference between the Iranian and South African parliaments was that the South African Parliament had only recently been empowered to amend the budgets of departments by means of the Money Bills Amendment Procedure and Related Matters Act. In the past, Parliament could not do this because there was no legislation in place to govern the process.The committees created by the Act were now enabled to do what the Iranian Committee for Planning and Budget did.

He added that the committees had to adhere to tight timeframes and had to consult with the other committees in Parliament and the Minister of Finance before amendments could be finalised. It was interesting to learn about how the Iranian system worked. Mr Singh felt that the Committee should do further research to assist it in amending the current legislation to make it more user-friendly.

Mr Singh asked if the members of the delegation were from different political parties.

Mr Mofatteh responded that the Iranian electoral system differed from the South Africa model. Members of Parliament in Iran were appointed directly by the votes of the people. Though there were different parties in Iran the elections were not run on the basis of a party system. The electorate voted for individuals and these appointments could not be relinquished until the end of the term.

Mr M Swart (DA) responded that all departments in government had to prepare a budget annually. They also had to prepare a three-year budget. The Committee could call any department to order if departments did not spend according to their budget. Parliament now had the right to change the budget of under-performing departments

Mr Mofatteh asked if the budget was prepared for a three-year term or a one-year term or both.

Mr Swart responded that the budget was prepared on an annual basis. Departments also had to indicate what their budgets were likely to be in the second and third years of the three-year term.

Mr Mofatteh asked how South Africa collected revenue for the budget allocations.

Mr R Mashigo (ANC) replied that the revenue was collected from the public by South African Revenue Services (SARS), who collected tax.

Mr Mofatteh asked what forms of revenue South Africa had, other than taxation.

Ms Mashigo responded that companies were taxed and Value Added Tax (VAT) was also collected. This determined the available revenue for allocation to government through the budget. It was very important to ensure that the allocations did not exceed the revenue collected. This process was driven by the National Treasury.

Mr Mofatteh asked if there were any other national resources.

Ms Mashigo added that South Africa also collected revenue through customs.

Mr Mofatteh asked how the appropriation for each department was determined, and whether this was done by Government, or by Parliament.

Ms Mashigo replied that the needs of the country were reflected in the Medium Term Budget Policy Statement (MTBPS). The departments also prepared five-year strategic plans. There was continuous communication between the departments and Parliament. The National Treasury evaluated all allocations.

The Chairperson pointed out that up to the 2008/9 financial year, South Africa was able to generate enough revenue for the budget, as it had had an annual budget surplus during this period.

Ms B Ncgobo (ANC) stated that national departments reported to Parliament, focusing on their expenditure according to their strategic plans.

Mr Mofatteh asked if Parliament collected the national revenue, and also monitored and decided how to allocate the revenue.

The Chairperson responded that SARS collected the revenue. The revenue was held by the National Treasury. Parliament decided on how the revenue would be distributed to the national departments, provinces and local government.

Ms Ncgobo stated that the national departments’ budgets and five-year strategic plans were debated by Parliament. The provincial allocations were debated at provincial level and the local allocations were debated at local level. It was important to follow up the expenditure to check that spending was in line with the five- year plans, programmes and projects.

Mr Mofatteh asked if the departments received a budget allocation for the three-year budget they prepared. He sought clarity on whether Parliament could modify the three-year budget as well as the annual budget.

Mr Swart replied that departments compiled their own budgets and submitted these to the National Treasury. Departments usually asked for more than was possible. Expected expenditure was then determined by evaluating these budget allocations. The National Treasury then had to ensure that the revenue collected would be enough to cover the allocations. Provinces and local government collected some of their own income. As South Africa was in recession, it was possible that it could collect less than anticipated, and, in that event, might have to borrow the difference.

Mr Mofatteh asked if Parliament could modify the three-year plan.

The Chairperson responded that the other two years were called indicative allocations. These indicative allocations were not set, and were subject to change. In most cases they increased slightly over the period. The latter two years were approximate allocations and were not binding.

The Chairperson then continued to outline the main sections of the Money Bills Amendment Procedure and Related Matters Act, specifically Section 6, dealing with the Medium Term Budget Policy Statement. He emphasised that this was the point in the budget cycle when Parliament could amend the budget. Once the budget was tabled, Parliament could not change the fiscal framework. After this point Parliament could only make adjustments to the programme allocations.

Ms Mashigo noted that the private sector also played a role in addressing South Africa's infrastructure needs through Public Private Partnerships (PPPs).

The Chairperson referred to Section 15, relating to the Parliamentary Budget Office. Parliament would establish this budget office to advise Parliamentary committees on budget decisions in accordance with the macroeconomic and microeconomic situation of the country. The Budget Office would be independent of Parliament.

Mr Mofatteh thanked the Committee for the opportunity afforded to the delegation to familiarise themselves with South Africa's budget and planning procedures and asked for documentation that detailed the procedures, including the relevant legislation. He added that the delegates would have a similar session in Pretoria. He repeated the invitation for the Committee to visit Tehran.

The Chairperson replied that the Committee enjoyed exchanging views with the Iranian delegation. The Committee would have been interested in furthering discussion on Iran's established budget processes.

Mr Mofatteh replied that the Iranian committee had its own research unit and was willing to share experiences.